Custom, Excise & Service Tax Tribunal
Kanchan India Ltd vs Udaipur on 9 January, 2020
1
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI.
PRINCIPAL BENCH - COURT NO. II
Excise Appeal No. 50656 of 2018 with Excise Miscellaneous
Application No. 51142 of 2019
(Arising out of order-in-original No. UDZ-EXCUS-000-COM-0018-17-18 dated
06.12.2017 passed by the Commissioner, Central Goods, Service Tax & Central
Excise, Udaipur).
M/s Kanchan India Limited Appellant
(SPG Division), 18th KM Stone
Ajmer Road, Nanakpura
Bhilwara.
VERSUS
Commissioner of Central Goods, Service Respondent
Tax & Central Excise 142-B, Sector-11, Hiran Magri, Udaipur.
WITH Excise Appeal No. 50657 of 2018 with Excise Miscellaneous Application No. 51145 of 2019 (Arising out of order-in-original No. UDZ-EXCUS-000-COM-0018-17-18 dated 06.12.2017 passed by the Commissioner, Central Goods, Service Tax & Central Excise, Udaipur).
Shri Prakash Bohra Appellant
Chief Executive Officer of
M/s Kanchan India Limited
(SPG division) 18th KM Stone
Ajmer Road, Nanakpura, Bhilwara.
VERSUS
Commissioner of Central Goods, Service Respondent
Tax & Central Excise
142-B, Sector-11, Hiran Magri, Udaipur.
AND
Excise Appeal No. 50658 of 2018 with Excise Miscellaneous Application No. 51143 of 2019 (Arising out of order-in-original No. UDZ-EXCUS-000-COM-0018-17-18 dated 06.12.2017 passed by the Commissioner, Central Goods, Service Tax & Central Excise, Udaipur).
Shri Durgesh Banger, Director Appellant
M/s Kanchan India Limited
(SPG division) 18th KM Stone
Ajmer Road, Nanakpura
Bhilwara.
VERSUS
Commissioner of Central Goods, Service Respondent
Tax & Central Excise
142-B, Sector-11, Hiran Magri
Udaipur.
2
APPEARANCE:
Shri Amit Jain & Ms. Sukriti Das, Advocates for the appellant Shri V. B. Jain, Authorised Representative for the respondent CORAM:
HON'BLE MR. ANIL CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. BIJAY KUMAR, MEMBER (TECHNICAL) FINAL ORDER Nos. 50019 - 50021/2020 DATE OF HEARING: 24.12.2019 DATE OF DECISION: 09.01.2020 ANIL CHOUDHARY:
All these appeals arise from impugned order-in -original by which cenvat credit on capital goods have been denied and penalty have been imposed on the appellant company, Shri Durgesh Bangar, Director of Rs. 10 lakhs and Shri Prakash Bohra, CEO of the company amounting to Rs.10 lakhs both under Rule 26 of the Central Excise Rules, 2002.
2. Brief facts of the case are that the appellant is engaged inter-
alia, in the manufacture of Polyester Viscose yarn, Cotton yarn, Cotton shirting and Denim fabric, falling under Chapters 52, 55 & 60 of the First Schedule to the CETA. Appellant has seven spinning mills in its factory and a separate plant for manufacture of cotton shirting/ denim fabric, which is in operation since March, 2012. Cotton shirting/Denim fabric is cleared in the domestic market, partly on payment of excise duty, and partly without payment of duty, availing exemption under Notification No.30/2004-CE.
3. In Mill Nos. 1, 2, 3, 4 and 5 only PV yarn is manufactured, which is cleared both on payment of duty and exported under the 3 claim of rebate. There is no dispute with regard to these mills. In October 2013, appellant installed various capital goods in Mill No. 6, for manufacture and captive use of cotton yarn in cotton/ denim fabric.
4. Mills No. 7 was installed by the appellant in February, 2015 for manufacturing cotton yarn, which was cleared partly on payment of duty. Cotton yarn manufactured in both mill Nos. 6 and 7 was cleared without payment of duty under Notification No. 30/2004-CE, as well as on payment of duty, and also exported.
5. Since appellant had made some clearances of both the products, viz cotton/ denim fabric and cotton yarn on payment of excise duty, cenvat credit of capital goods and their spares, installed in Mill Nos. 6, 7 and the denim plant was availed by the appellant.
6. During the course of audit of record of the appellant by the officers, it was noticed that they have separate production of cotton yarn from the month of December, 2013 in cotton spinning section and cleared the said cotton yarn without payment of duty by availing the benefit of Notification No. 30/2004-CE as amended. It was also observed that they were effecting domestic clearances of cotton denim fabric without payment of duty availing the exemption under Notification No. 30/2004-CE. Further, found that as appellant were not availing cenvat credit on inputs and input services used by them for manufacturing of cotton yarn and cotton denim fabric, thereby opting for full exemption from payment of Central Excise duty and also satisfying conditions under the said notification. Thus, it 4 appeared that no duty was leviable on cotton yarn and cotton denim fabric in terms of the said notification. However, the appellant had availed cenvat credit on capital goods which were being used exclusively in manufactured of exempted goods i.e. cotton yarn amounting to Rs.1,13,57,310/- which appeared inadmissible in terms of Rule 6(4) of Cenvat Credit Rules, 2004. In this regard, audit team issued query dated 05.01.2015. Further, the Superintendent of the Range by his letter dated 12.01.2015, 30.01.2015 and 11.02.2015 requested the appellant to provide details of credit taken on capital goods and also directed to deposit the wrongly availed cenvat credit alongwith interest. The appellant vide letter dated 25.01.2015, took the stand that the company is engaged in manufacture of synthetic yarn of various qualities, cotton yarn with PV yarn, cotton blended yarn with polyester, denim fabric etc. For manufacture of these final products, raw material of polyester and viscose staple fibre used for PV and synthetic yarn. Further, manufacturing of various blended yarn cotton yarn blend with pre-oriented yarn and viscose yarn as well as denim fabric cotton yarn undergoes working and dyeing by using various dyes and chemicals and after that goes through air jet loose. Further, cotton yarn with PV yarn cotton blended yarn with polyester, viscose yarn, synthetic yarn and denim fabric manufactured from the said capital goods were exclusively used in the same registered premises of the appellant. Capital goods are used in manufacture of various qualities of yarn as well as denim fabric, which were cleared on payment of duty. In the registered premises, cotton yarn is also manufactured by the appellant capital goods in question is being used in the nature of intermediate goods 5 and various yarn as well as denim fabric manufactured from the said intermediate goods alone can be termed as final product. Hence, they are eligible to cenvat credit on the capital goods in question used in manufacture of intermediate goods which have been further used in the manufacture of dutiable output.
7. Revenue further summoned Shri Durgesh Bangar, Director of the assessee who in his statement inter-alia stated that they were exporting PV yarn by availing the cenvat credit facility on input and they were not exporting cotton yarn and denim fabric, but they were clearing the said goods in domestic market. They were availing cenvat credit on capital goods used for manufacture of cotton yarn and cotton denim fabric. They were also manufacturing cotton polyester blended yarn with the help of the capital goods in question. Further, appellant by letter dated 18.03.2015 submitted details of cenvat credit taken on capital goods for the period April, 2013 to February, 2015, and also submitted that some copies of invoices for clearance of cotton yarn and fabric on payment of duty. On further summons by Department appellant submitted the list of machines used in manufacture of cotton yarn, details of value of cotton yarn cleared on payment of duty and without payment of duty, details of quantity and value of other than cotton yarn cleared on payment of duty. Details of quality of denim fabric cleared on payment of duty and without payment of duty, details of captive consumption of cotton yarn for the period 2013-14 and 2014-15, certificate from machine suppliers with the declaration that the machines in question are used 6 for manufacturing of synthetic yarn of various qualities, cotton yarn with PV yarn, cotton blended yarn, etc.
8. Further statement of Shri Ashok Sharma, General Manager (Technical) was recorded on 04.12.2015 wherein he stated that he was looking after mill No. 1 and 2 of Synthetic yarn plant. He also looks after other plant when General Manager is on leave. He further stated that Mill No. 1 to 5 is exclusively used for manufacturing of synthetic yarn only. Further statement of Shri Murlidharan P. Reddy, Vice President (Technical) was recorded who was looking after the production relating to cotton spinning plant, called as Mill No. 6. The process of manufacture in the said plant was stated to be conversion of cotton fibre into cotton yarn with the help of open end spinning mill. He also confirmed that there were seven spinning mills No. 1 to 7 and one denim manufacturing unit. In Mill No. 6 purely cotton as well as cotton yarn mixed with polyester yarn were being manufactured and not exclusively PV yarn was manufactured in the said mill. Further, in Mill No. 7 only cotton yarn and cotton yarn mixed polyester was manufactured.
9. Further statement of Shri R. K. Bansal, General Manager (Accounts) of KIL was recorded on 10.12.2015 who inter alia stated that they were clearing the PV yarn for domestic as well as for export. They have cleared four consignments of cotton yarn without payment of duty and without exemption of ARE-1 under Notification No. 30/2004. He also submitted fifteen bills or invoices. In respect of cotton yarn, they were clearing the same under exemption without payment of duty. However, they have cleared five consignments of 7 cotton yarn in DTA on payment of duty to M/s Sai Leela Synthetic Pvt. Limited, Bhilwara.
10. Further statement of Prakash Bohra, CEO was recorded on 28.01.2016. He inter alia stated that he was working with the appellant company since February, 2012. He looks after all the works of the company and is head of the spinning division including purchase of raw material, production efficiency and sale of goods etc. He stated that the said unit is engaged in manufacture of cotton yarn, PV yarn and denim fabric. The unit was established in 2009. In 2013, open end mill bearing No. 6 was installed. Further, in 2015, one cotton spinning mill bearing No. 7 and one yarn dyeing house was created. Further, in 2015, expansion of the fibre die house was done. He also provided the details of cenvat credit availed by the appellant company for the period 2011-12 to 2015-16 (upto September, 2016). In respect of clearance of cotton yarn and denim they were availing the exemption under Notification No. 30/2004, however, they have cleared five consignments to M/s Sai Leela Synthetic Pvt. Limited, Bhilwara, on payment of duty during the period February, 2015 to November, 2015. The duty on cotton yarn was paid as per requirement of the customer, though exempt.
11. Further statement of Shri Nand Lal Jalan, Director of M/s Sai Leela Synthetic Pvt. Limited, Bhilwara was recorded on 16.02.2016, wherein he inter alia stated that he was the working Director and looking after all the work relating to purchase and sale of the company. He further stated that they were engaged in manufacture of synthetic grey fabric for the last 15 years. They were purchasing 8 PV spun yarn and texturised yarn which was mainly purchased from Sangam India Limited, Kanchan (appellant) and also from some other companies. That they were subject to levy of excise duty on manufacture of synthetic grey fabric, and sell the manufactured grey fabric and in the domestic market. He also stated that they have never purchased cotton yarn from any of the unit, as cotton yarn is not used in the fabrics manufactured by them. On being shown, the statement of Shri Rajesh Bansal, Accountant of KIL wherein they have stated the sale of consignment of cotton yarn on payment of duty to his company as mentioned hereinabove, Shri Jalan after going through the statement stated that they have never purchased cotton yarn, and cotton yarn was not used in the fabric manufactured by them. He categorically stated that they have not purchased cotton yarn against the aforementioned bills and he was not aware as to why KIL have shown these invoices of cotton yarn in their name. He again reiterated that no cotton yarn have been received in their premises. Neither they have made any payment to KIL on these bills. Also stated that they have purchased only PV yarn from the appellant company and thus they have made payment as per their books of accounts only towards purchase of PV yarn.
12. The scrutiny of chart submitted by the appellant it appeared to Revenue, did not contain the details of invoices of capital goods pointed out by the audit team and used for production of cotton yarn. Therefore, the investigating agency constituted a committee of the principal MLV Textile, Bhilwara to verify the parts mentioned in the annexed chart as per technical specification, which means for 9 machinery used for manufacture of cotton yarn. The committee of four members was constituted and vide a report dated 13.01.2017 opined that - „the machine/ parts mentioned in the annexed list are used for cotton yarn manufacturing / spinning‟.
13. Further, it appeared to Revenue that the transaction shown by the appellant company the removal of cotton yarn on payment of duty to M/s Sai Leela Synthetics Pvt. Limited, is a shame transaction created only for the purpose of availing cenvat credit on capital goods. Further, enquiries was made from the machine supplier - M/s Laxmi Machine Works Limited, Coimbatore who confirmed that the machinery in question are designed for manufacturing of synthetic blended cotton yarn with PV yarn cotton blended yarn with polyester and cotton yarn of different qualities. Therefore, cenvat credit of Rs.1,13,57,316/- as per Annexure-A to the show cause notice availed by the appellant was pertaining to the machine/ parts used exclusively for manufacture of cotton yarn. Further, as per list provided by the CEO of the appellant, who submitted the details of parts used for cotton machine and in respect of such parts appellant have availed cenvat credit of Rs. 3,18,126/- as per Annexure-B to the show cause notice, in respect of six invoices during the period March, 2015 to June, 2015 totalling Rs. 1,16,75,442/-. Further, it appeared that the appellant has cleared denim fabric and shirting in DTA by availing exemption under Notification No. 30/2004-CE, also stated that they have not exported any consignment of these goods so far as appears from the statement of the officer of the company. The appellant cleared some consignment of denim fabric and shirting on 10 payment of duty which was 0.02 to 0.04 of the turnover during the period 2012-13 to 2015-16 (upto October, 2015). These facts were verified from ER-I returns.
14. Further, the statement dated 28.01.2016 of Shri Prakash Bohra, CEO, submitted details of machine and parts meant for manufacture of denim fabric and shirting on which they have availed cenvat credit for Rs.3,33,97,822/- in respect of 312 invoices during the period March, 2012 to September, 2015.
15. It further appeared to Revenue, under Rule 6(4) of Cenvat Credit Rules where an assessee is exclusively manufacturing the goods which are exempt from payment of Central Excise duty, they are not entitled to avail cenvat credit in respect of capital goods. It further appeared that the word „exclusively‟ should be taken as principally or predominantly. Thus, the purpose or motive of use of capital goods is a deciding factor for admissibility of cenvat credit on such goods. It also appeared that meaning of „exclusively‟ cannot be interpreted in narrow sense without considering other provisions of cenvat credit scheme such as Rule 2, 3 and 6. Further, as per cardinal principal of law, the rule of Reading Down to be used for the limited purpose of making a particular provision workable and to bring harmony with other provisions of the statute. In the facts of the instant case, principal of harmonious construction requires that meaning of „exclusive‟ be understood as principal or predominantly use of such goods. Thus, the word „exclusively‟ in Rule 6(4) refers for the intended purpose or motive of use of capital goods and it does not refer to „total quantum‟ of use of such capital goods. It further 11 appeared that appellant have cleared cotton yarn availing exemption under Notification No. 30/2004-CE and they have not cleared any such goods on payment of duty, whereas they have availed cenvat credit of Rs.1,16,75,442/- in respect of capital goods and parts used for manufacture of cotton yarn during the period September, 2013 to September, 2015.
16. Thus, it appeared that the total cenvat credit on capital goods amounting to Rs.4,50,73,264/- (Rs.1,16,75,442/- +Rs.3,33,97,822/-) during the period March, 2012 to September, 2015 appear to be not admissible and wrongly availed in respect of capital goods and parts thereof used in Mill No. 6 and 7 and the denim fabric mill.
17. Further, on scrutiny of invoices it appeared that appellant have availed cenvat credit of Rs. 1,12,19,926/- on 128 invoices, Annexure- D to show cause notice pertaining to capital goods, however, these invoices were issued in the name of other units of Kanchan Group such as Kanchan India Limited at Mandal, Distt- Bhilwara having registration No. AABCK0452CXM001 and also another unit having registration No. AA3CK0452CEM003. As per rule 9(2) of Cenvat Credit Rules, no credit shall be taken unless all the particulars as prescribed are contained in the document. It also appeared that out of 128 invoices, 49 invoices involving credit of Rs. 89,31,420/- are also covered in the invoices of plant and machinery of denim fabrics. Thus, the amount of Rs. 89,31,420/- is also included in it. Thus, credit of Rs. 22,88,306/- (Rs.1,12,19,726/- (-) Rs. 89,31,420/-) did not appear admissible as the duty paying documents are not in the 12 name and address with registration number of this unit of the appellant company.
18. It further appeared that the appellant have availed inadmissible cenvat credit in contravention of the scheme of the Act and Rules and thus they were also liable for penalty and also extended period of limitation was applicable in view of the suppression of facts including preparing of fake invoices in the name of M/s Sai Leela Synthetics Pvt. Limited. Further, as the appellant has used inadmissible cenvat credit on capital goods for clearance of their other excisable products i.e. PV yarn. Accordingly, they have contravened the Rule 4, 8 and 12 of Central Excise Rules. Hence, the clearance of goods is without payment of duty rendering them liable to penal action under Rule 25 of Central Excise Rules read with Section 11AC of the Act. Accordingly, for complicity, Shri Durgesh Bangar, Director of KIL and Shri Prakash Bohra, Chief Executive Officer are also liable for penalty under Rule 26 of Central Excise Rule read with Rule 15A of Cenvat Credit Rules. Accordingly, show cause notice dated 17.03.2017 was issued calling upon the appellant company to show cause as to why:-
"(i) Cenvat credit amounting to Rs. 4,73,61,570/- wrongly availed, should not be recovered from them under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A(4) of the Central Excise Act, 1944;
(ii) Interest at applicable rate should not be recovered from them, on the amount a availed wrongly towards cenvat credit, under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11 AA of the Central Excise Act, 1944;
(iii) Penalty should not imposed upon them under Rule 15(2) of CENVAT Credit Rules, 2004 read with Section 11 AC of the Central Excise Act for violation of the provisions as discussed above;
(iv) Penalty should not be imposed upon them under Rule 25 of the Central Excise Rules, 2002 read with Section 11 AC of the Central Excise Act.13
(v) Penalty was also proposed on the director."
19. The appellant contested the show cause notice by filing reply dated 23.10.2017 wherein they contended that under the facts and circumstances their company have made some clearances on payment of duty to M/s Sai Leela Synthetics Pvt. Limited. It cannot be said that capital goods were exclusively used in the manufacture of exempted goods. Further, clearance for export without payment of duty is equivalent to dutiable clearance. Further, contended that Rule 6(4) of Cenvat Credit Rules does not envisage that the manufacture and clearance of dutiable goods should be substantial as compared to exempt goods for availing of cenvat credit on capital goods. Therefore, even in case of a single consignment is cleared on payment of duty then also the capital goods in question are eligible for taking of cenvat credit, and thus Rule 6(4) will not be applicable were capital goods will be used in manufacture of dutiable goods during their economic lifetime. The appellant relied upon the five invoices where cotton yarn was sold to M/s Sai Leela Synthetics Pvt. Limited on payment of duty and further submitted copy of invoices where certain consignments were exported, alongwith proof of export. It was also contended that export of goods without payment of duty is at par with clearance of goods on payment of duty under claim of rebate. Further, the appellant have disclosed export sale in their ER- 1 returns for the relevant period where exports have been shown under Notification No. 19/2004-CE. It was contended that export of goods without payment of duty under Rule 19 does not make such goods, exempted goods. So far the allegation in the show cause notice that exports have been made without payment of duty and 14 without cover of ARE-1 (bond), the appellant contended that as goods are exempt under Notification No. 30/2004-CE, there is no requirement of export under bond or ARE-1. Thus, export of exempt goods without payment of duty cannot be treated as clearance of exempted goods, which is amply clear.
20. The appellant also contended that so far the allegation of availing credit in respect of 128 invoices totalling Rs. 1,12,19,726/-, that the duty paying document is bearing the name of the appellant company but address is of their other unit. It was submitted that the physical receipt of capital goods in their factory is evident from LR/GR issued by the transporting agency read with gate inward register. Further, there is no dispute as regards payment of excise duty on the capital goods. Thus for mere technical issue substantial benefit of cenvat credit should not be denied. Reliance was placed on the ruling of this Tribunal in BSNL vs. CCE, Salem -2012 (28) STR 624. It was also contended that they have in course of time got their proper address and registration number mentioned on the original invoice from the supplier of the goods. The appellant also prayed for cross- examination of Shri Nand Lal Jalan, Director of M/s Sai Leela Synthetics Pvt. Limited whose statement was relied upon in the show cause notice. The appellant also contested the invocation of extended period of limitation.
21. The show cause notice was adjudicated by the learned Commissioner vide impugned order-in-original dated 06.12.2017. In the course of personal hearing the witness of Revenue Shri Nand Lal Jalan appeared on 12.09.2017 and he was cross-examined by Shri 15 Keshav Maloo, Consultant on behalf of the appellant-assessee. The examination and cross-examination was as follows:-
"13.1 On 12.09.2017, Shri Nand Lal Jalan, Director of M/s.Sai Leela Synthetics Private Limited, Bhilwara appeared for cross examination and he was examined by Shri Keshav Maloo, Consultant on behalf of the assessee.
During cross examination following questions were asked for:
Questions by the department from Shri Nand Lal Jalan: Question 1: When the letter of cross examination was rejected by him Ans.: It was received approximately 4-5 days ago. Question 2: Whether any person from M/s. Kanchan India Limited as contacted him during this period?
Ans.: Yes, Shri Rajesh Bansal working in M/s. Kanchan India Limited contacted him during this period and got him met with Shri Keshav Maloo, Consultant.
Question3: when he was departmental witness, then why he admitted to meet Shri Keshav maloo.
Ans. Shri Nand Lal Jalan could not reply.
Shri Kishav Maloo, Consultant of the noticee asked the following question during cross examination:
Question 1: Shri Keshav Maloo stated that the cross examination is for the purpose of bringing out the truthfulness. He asked whether Shri G.P. Dadhich has contacted him and discussed about the case. Ans. Shri G.P. Dadhich contacted him just before a day and asked him that he would go with him and accordingly he came with him. Question 2: Whether he received the goods under 5 invoices as mentioned at page 9 of Show Cause Notice.
Ans. Shri Jalan stated that he had tendered statement in this regard and same is correct.
Question 3: It means you have not received the goods. Ans. Shri Jalan stated that they have not received the goods. Question 4: Whether you have made any payment against these invoices.
Ans. Shri jalan stated that he could not recall. Question 5: whether any entry has made in the accounts against these invoices.
Ans. Shri Jalan stated that he could reply after verify the records."
22. Thereafter, few days, Shri Nand Lal Jalan vide his letter dated 03.10.2017 submitted that when he appeared for cross-examination 16 on 12.09.2017, he could not tender his correct statement as the work relating to purchase and payments were done by other person and hence he was not fully aware about the purchase of yarn. Further, due to anxiety also he could not give his correct statement. Hence, vide this letter, further clarifies they have purchased cotton yarn vide five bills in question, yarn from KIL for trial production and had paid for the invoices by cheque. He further annexed the copy of account of KIL as per the books of M/s Sai Leela Synthetics Pvt. Limited, duly certified by him. He further prayed that the earlier statement and cross-examination may not be relied upon and reliance be placed on the letter, now being written.
23. Learned Commissioner as regards the proposed demand of Rs.1,16,75,442/- being credit availed on capital goods and parts thereof observed that the Director of M/s Sai Leela Synthetics Pvt. Limited Shri Nand Lal Jalan in the course of investigation categorically stated that they were engaged exclusively in manufacture of P/V fabric and hence they purchased only P/V yarn from appellant M/s KIL and they have never purchased cotton yarn from the said KIL. After being shown the statement of Shri Rajesh Bansal, Manager of KIL and the invoices under which KIL have shown clearances of cotton yarn to M/s Sai Leela Synthetics Pvt. Limited, he clearly stated that they have never purchased cotton yarn as the same was not used/ input in their product. This statement was tendered on 16.02.2016 and there was no retraction thereafter. Moreover, Shri Nand Lal Jalan at the time of cross-examination on 12.09.2017 in the adjudication, again confirmed his statement on 16.02.2016 as true. Shri Nand Lal Jalan 17 also stated that Shri Rajesh Bansal, General Manager of KIL had contacted him and taken him to their Consultant Shri Keshav Maloo before the cross-examination, but still he has stood by his statement in cross-examination and it was only on subsequent persuasion that Shri Nand Lal Jalan has written the letter dated 03.10.2017, which has got no evidentiary value. It was also observed that the letter dated 03.10.2017 is evidently written by Shri Nand Lal Jalan only under influence of the officer and Consultant of KIL.
24. So far the claim of export is concerned, as to export of four consignments of cotton yarn, learned Commissioner observed that goods can be cleared for export under Rule 19 of Central Excise Rules without payment of duty subject to condition, safeguards and procedure as may be specified by way of notification. As per Notification No. 42/2001-CE (NT) as amended, lays down the conditions and procedure for export of excisable goods, without payment of duty from the factory of production. The notification stipulates that an exporter shall furnish a general bond to the Central Excise authority having jurisdiction over the factory of a sum equal to atleast the duty chargeable on such goods which such surety or sufficient security as the officer may approve for the due arrival thereof at the place of export and export therefrom under customs or as the case may be, postal supervision. Further, „letter of undertaking‟ may be submitted in lieu of bond. Further, as per procedure the exporter shall certify on all copies of the application (ARE-1) that the goods have been sealed in his presence, and shall stand the original and duplicate copy of the application alongwith 18 goods at the place of export and shall send triplicate and quadruplicate to the Superintendent or Assistant Commissioner of Central Excise having jurisdiction over the factory within 24 hours of such removal. As the appellant admitted to have not filed any bond or LUT to the Central Excise authorities for export of cotton yarn without payment of duty. Moreover, they have not filed any application for export which requires further verification by the Central Excise authority. Moreover, no triplicate or quadruplicate copies were produced to the Central Excise authority and it was not forwarded to the Port of Export. Further, proof of export has not been submitted within the specified period. Thus, appellant have not exported the goods as required under Rule 19 of the Central Excise Rules read with notification, rather they have exported the consignment only considering them as exempted goods and accordingly have neither furnished the LUT nor filed any application for export. Further, as the appellant was availing exemption under Notification No. 30/2004-CE for the cotton yarn and fabrics, there exports could not be covered under Notification No. 42/2001-CE. Further, the appellant have claimed the drawback at higher rate under category „A‟ which was applicable for the assessee availing cenvat credit in respect of input and input services. Thus their exports cannot be considered as export under Rule 19 of Central Excise Rules, 2004.
25. Further, the Commissioner held that the claim of clearance of cotton yarn on payment of duty to M/s Sai Leela Synthetics Pvt. Limited is a sham transaction. Accordingly, confirmed the 19 disallowance of Rs. 4,73,61,570/- with order for recovery under Rule 14 of Cenvat Credit Rule, read with Section 11A(10) of Central Excise Act and Section 174 of CGST Act, 2017. Further, interest was demanded and penalty being 50% of the disallowance amount was imposed under Rule 25 (1)(d) of Central Excise Rules read with Section 11AC and further penalty of Rs. 42,88,439/- was imposed under Rule 15(2) of Cenvat Credit Rules read with Section 11AC of the Central Excise Act. Further, on the other appellant Shri Durgesh Banger and Shri Prakash Bohra, penalty of Rs. 10 lakh each under Rule 26 of Central Excise Rules, 2002 was imposed.
26. Being aggrieved, the appellants are before this Tribunal.
27. Heard the parties and perused the records.
28. Learned Counsel for the appellant made the following submissions:-
28.1 Cenvat credit availed on the capital goods used in the manufacture of dutiable cotton/ denim fabric.
It is an admitted fact that cotton/ denim fabric has been cleared by Appellant on payment of duty from March 2012 onwards (i.e. right from the start of this plant), as is evident from the sample invoices indicating payment of excise duty on clearances of such denim fabric, which was duly disclosed in the ER-1 returns. 28.2 Denial of Cenvat Credit on capital goods used in the manufacture of cotton/ denim fabric on the ground of negligible clearances on payment of duty is not sustainable in light of the decision of this Tribunal in the case of CCE &ST-Udaipur v. Chairman Processors Ltd., 2018 (9) TMI 169, wherein it was held that even if capital goods have been predominantly used in manufacture of goods cleared under exemption, the restriction contained in Rule 6(4) of the Credit Rules is not applicable as 20 small quantity of finished goods have admittedly been cleared on payment of duty.
Similarly, in the case of Lakshmi Balaji Bottling Pvt. Ltd. v. CC & CE, Tirupati, 2018-TIOL-2916-CESTAT-HYD, the Hon‟ble Tribunal held that there is no requirement in Rule 6 (4) for use of the capital goods to any specified extent in manufacture of dutiable goods and that the rule entitles an assessee to claim credit on capital goods even if it is used to manufacture a single unit of dutiable goods.
In the following cases, quantum of dutiable goods cleared was held to be not relevant for application of Rule 6(4):
Rana Sugars Ltd. v. CCE, Ludhiana, 2012 (281) ELT 617 (Tri. - Delhi).
Oberthur Card System Pvt. Ltd. v. CCE, Noida, 2013 (292) ELT 515 (Tri. - Delhi).
Cenvat Credit availed on capital goods used in the manufacture of Cotton yarn.
(i) Cotton yarn exported, therefore, Rule 6 (4) not applicable.
During the period in question, appellant has admittedly exported 4 consignments of cotton yarn. This fact is duly corroborated from shipping bills and the corresponding invoices. It is submitted that Rule 6(4) of the Credit Rules is not applicable in the present case since cotton yarn has been exported by the Appellant, in terms of Rule 6(6)(v) of the Credit Rules, which restricts the applicability, inter alia, of Rule 6(4) in such a case.
In the instant case, the appellant has exported cotton yarn without payment of duty. Therefore, the present case is covered by the provisions of Rule 6(6)(v) of the Credit Rules, hence, the provisions of Rule 6(4) of the Credit Rules are not attracted. The factum of export of cotton yarn has not been disputed in the impugned order or in the SCN, therefore, Rule 6(4) of the Credit Rules has no application, in light of the provisions of Rule 6(6)(v) of the Credit Rules.
In the case of Repro India Ltd. v. Union of India, 2009 (235) ELT 614 (Bom.), the Hon‟ble Bombay High Court held in favour of the assessee, observing that if exempted final product is exported it calls for a special relaxation/dispensation to make the goods of the country internationally competitive; further, the intention is not to export taxes but only to export the goods; Rule 6(6)(v) has been consciously and expressly 21 enacted with the objective to ensure that duty is not levied on inputs going in the export products and that considering the conscious and express provisions contained in Rule 6(6)(v) for export goods, to deny permission to export the goods would be incorrect and that this will completely nullify and frustrate Rule 6(6)(v).
The judgment in the case of Repro India Ltd. (supra) was followed by the Hon‟ble Himachal Pradesh High Court in the case of CCE v. Drish Shoes Ltd., 2010 (254) ELT 417 (H.P.), to hold that Rule 6(1) is subject to the exception contained in Rule 6(6), one of the exception being that in respect of excisable goods cleared for export. This judgment of the Hon‟ble High Court was affirmed by the Hon'ble Supreme Court, 2018 (360) ELT 119 (S.C.).
To similar effect is the judgment of Hon‟ble Tribunal in the case of Sangam India Ltd. v. CC& ST, Udaipur, 2018 (1) TMI 1012-CESTAT, New Delhi, observing that the benefit of Rule 6(6)(v) has to be extended when goods have been exported, thus precluding the operation of Rule 6(4).
(ii) Cotton yarn cleared on payment of duty - documentary evidence to prevail over oral evidence As stated above, five consignments of cotton yarn were cleared by the Appellant on payment of duty to M/s Sai Leela Synthetics P. Ltd. With regard to these consignments, buyer of the goods initially in his statement denied purchase of the goods and also confirmed the same in his cross-examination. However, vide subsequent letter dated 03.10.2009 they confirmed the purchase of these goods, and also provided copies of their ledger account to support their claim. This subsequent letter has been rejected by the Ld. Commissioner in para 15.1.2 of the impugned order to be not genuine and under influence of the Appellant. In this regard, it is submitted that rejection of the said letter and the evidences provided by the buyer is incorrect in law. If the Ld. Commissioner had any doubt, he could have caused verification of the claim through the jurisdictional central excise authorities. These transactions are duly reflected in the books of the Appellant.
22 It is settled law that documentary evidence prevails over oral evidence. Reliance in this regard is placed on the judgment of Hon‟ble Bombay High Court in the case of Santogen Textile Mills Ltd. v. CCE, 2017 (347) ELT 581 (Bom.) & Classic Strips Ltd. v. CCE, 2016 (339) ELT 144 (Tri.-Mum.),
(iii) Execution of bond not required in case of export of exempt goods. In any case, it is only a procedural requirement.
Ld. Commissioner, in the impugned order, has declined the Cenvat benefit with respect to export of goods on the ground that the Appellant did not execute a Bond/ LUT, as required under Rule 19 of the Excise Rules, read with Notification No. 42/2001-CE (NT) dated 26.06.2001. It is submitted that Condition (iv) of Notification No. 42/2001-CE (NT), clearly provides that export of excisable goods which are chargeable to nil rate of duty or are wholly exempt from payment of duty shall not be allowed under this notification. The said notification mandates submission of bond/LUT for export of dutiable goods to ensure that the goods are exported and not diverted elsewhere, in order to safeguard the Govt. revenue. However, this safeguard is not required in cases where goods are chargeable to nil rate of duty or are wholly exempted from payment of duty, as there is no risk to the Govt. revenue. This does not however, mean that export of such goods is not allowed or the goods, when exported, lose the character of export goods. Para (iv) of the notification expressly provides that in cases where the goods are chargeable to nil rate of duty or are wholly exempted from payment of duty, the conditions/procedure provided under Notification No. 42/2001-CE(NT) are not applicable, the goods however, still remain as export goods. Since, the Appellant had cleared cotton yarn, availing exemption under Notification 30/2004-CE, there was no requirement to execute a Bond for export, under Rule 19 of the Excise Rules.
23 In the case of Repro India Ltd. (supra) & Drish Shoes Ltd. (supra), it was Department‟s own contention that no bond/ LUT is required to be executed for export of the exempt goods. Without prejudice to the above, non-execution of Bond for export of goods has been held to be only a procedural requirement when the basic principle of excise taxation is that only goods have to be exported and not the domestic taxes/ levies. In this regard, reliance is placed on the case of Neo Foods Pvt. Ltd. v. CC (Appeals), Bangalore, 2009 (242) ELT 562 (Tri. - Bang.).
(iv) Cotton yarn captively consumed in manufacture of dutiable denim fabric, as well as cleared on payment of duty. As already stated, Mill Nos. 6 & 7 were employed by Appellant for manufacture of cotton yarn, which was partly cleared under exemption Notification No. 30/2004-CE and partly for captive consumption (used as intermediate product) in manufacture of cotton/ denim fabric (cleared on payment of excise duty). The said factual position was already in the knowledge of Department as supported by Appellant‟s letter dated 25.02.2015. It is submitted that Cenvat credit has been correctly availed by the appellant on the capital goods installed in Mill Nos. 6 & 7 since these were used for manufacture of intermediate-cotton yarn (exempted good), captively used for manufacture of cotton/ denim fabric (cleared on payment of excise duty). Thus, the capital goods were in fact, used for manufacture of cotton/ denim fabric (dutiable product), rather than in manufacture of exempted cotton yarn. Therefore, it cannot be said that the capital goods installed in Mill Nos. 6 & 7 were exclusively used in manufacture of exempted goods, hence, the denial of Cenvat credit is unjustified and not sustainable.
In the case of Rana Sugar Ltd v. CCE, 2012 (281) E.L.T. 617 (Tri. - Del.), this Tribunal held that the restriction contemplated in Rule 6(4) of the Credit Rules cannot be invoked when the 24 capital goods were used for manufacturing of spirit, a non- excisable item, which was used as an intermediate product for conversion into de-natured spirit, which was cleared on payment of excise duty.
In light of the above, Cenvat credit cannot be denied to the Appellant on the capital goods which were admittedly used in manufacture of intermediate product, further used in manufacture of dutiable final product. Reliance in this regard is placed on CBEC Circular No. 664/55/2002-CX., dated 25.09.2002, which clarified that the Cenvat credit should not be denied on the capital goods used in the manufacture of intermediate goods exempt from payment of duty which are used captively in the manufacture of finished goods chargeable to duty. (emphasis supplied) The finding of the Ld. Commissioner is in consonance with the stand of the Appellant as well. Appellant has always contended that they intended to use the subject capital goods for the manufacture of dutiable as well as exempted goods, which is clearly reflected from the evidence available on record, as stated above. It is submitted that the „intention to use' has been held to be a decisive factor and Cenvat credit cannot be denied on the ground that the capital goods were initially used to manufacture exempted goods only and the dutiable goods were manufactured only subsequently. In this regard, reliance is placed on the judgment of Hon‟ble Gujarat High Court in the case of CCE v. Gujarat Propack, 2009 (234) ELT 409 (Guj.).
Further, Rule 6(4) was substituted w.e.f. 01.04.2016, vide Notification No. 13/2016-CE(NT) dated 01.03.2016 to provide that no Cenvat credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods for a period of two years from the date of commencement of commercial production. It is therefore, evident that prior to the above, there was no restriction of time limit for use of the goods in the manufacture of dutiable goods. In the case of Gujarat Propack (supra) it was held that 25 usage of the machine is to be seen with regard to its working life and not utilisation in a limited specific period. Without prejudice to the above, it is submitted that the Appellant used the capital goods in question for manufacture of dutiable goods within the period of two years.
It is humbly submitted that capital goods and their use are qua the manufacturer, i.e. the appellant in the present case and not qua the factory. The Ld. Commissioner has erred in assuming that the subject capital goods are capable of being used only in the manufacture of cotton yarn and denim fabric and has blindly relied upon the report/ certificate 13.01.2017 of MLV Textile Engineering College, disregarding the fact that the certificate was in response to a very specific query. It is submitted that the Department had never posed the question as to whether the machinery was also capable of being used in the manufacture of PV yarn; however, such fact has been certified by a Chartered Engineer. It is humbly submitted that the finding in the impugned order that the word "exclusively" used in Rule 6(4) is required to be construed as "pre-dominantly" is unsustainable as it amounts to altering the words in the statute, which is clearly impermissible in law. Reliance in this regard is placed upon the judgment of Hon‟ble Supreme Court in the case of Grasim Industries Ltd. v. CC, 2002 (141) ELT593 (SC).
Cenvat credit correctly availed on the strength of eligible documents under Rule 9(1) of the Credit Rules - Substantive benefit not to be denied for procedural infractions, if any. It is humbly submitted that receipt of capital goods by the Appellant under the said 128 invoices is not disputed, rather it is supported by the findings of the Ld. Commissioner recorded at Para 6.9 in the impugned OIO. The fact of receipt is further corroborated by copies of LR/ GR issued from the transport agencies in which the address of the Appellant is conspicuously mentioned, along with the invoices.
26 Further, the proviso to Rule 9 (2) of the Credit Rules prescribes that if a document does not contain all the particulars but contains the particulars mentioned in the proviso, then, credit may be allowed if the Deputy/ Assistant Commissioner is satisfied that the goods have been received and accounted for. Proviso to Rule 9(2) clearly provides that only the name and address of the factory/ warehouse/ premises of first stage or second stage dealer is required, and not that of the recipient. Hence, the Appellant is entitled to the exception carved under proviso to Rule 9(2). Without prejudice to the above, the Appellant had also obtained and submitted the rectified invoices, however, the same have been rejected by the Ld. Commissioner on the specious ground that the Appellant has not applied to the jurisdictional authority for allowing the credit.
It has been consistently held by various judicial foras that substantive benefit cannot be denied for procedural infractions:
Century Metal India v. CGST, CCE, Alwar, 2018 (7) TMI 984-CESTAT - NEW DELHI.
Adbur Pvt. Ltd. v. CST, Delhi, 2017 (5) GSTL 334 (Tri. - Delhi) CC, CE & ST, Guntur v. Viki Industries Pvt. Ltd., 2017-
TIOL-794-CESTAT-HYD.
Bhalla Techtran Industries Ltd. v. CCE, Noida, 2016 (342) ELT 448 (Tri. - Delhi) OTHER SUBMISSIONS Extended period not invocable; Penalty not imposable and interest not recoverable.
A.1 It is submitted that the present demand has been raised for the period from March 2012 to October 2015 and the SCN was issued on 17.03.2017, therefore, the demand amounting to Rs. 3,45,77,767/-, for the period upto April 2015, is beyond the normal period of limitation, hence, liable to be set aside, as time barred.
27A.2 All information relating to availment of Cenvat credit on capital goods by the Appellant were on record and known to the department when the records were audited on several occasions. Further, the Department was aware of all activities undertaken by the Appellant as earlier also show cause notice was issued on the issue of admissibility of Cenvat credit on the basis of improper documents. This fact stands admitted by the Ld. Commissioner in para 16 of the impugned order. Therefore, everything was in the knowledge of the department. A.3 Hence, the allegation of suppression of facts cannot be sustained against the appellant in light of Pushpam Pharmaceuticals Company vs CCE, Bombay, 1995 (78) ELT 401 (SC) and Uniworth Textiles Ltd. v. CCE, Raipur, 2013 (288) ELT 161 (SC).
A.4 For the above reasons as well as on account of non-sustainability of demand and bona fide belief of the appellant that credit was admissible to them, penalty imposed is not sustainable and interest is not recoverable. Once the duty demand itself is not sustainable, the question of imposition of penalty does not arise. Reliance is placed on the case of CCE v. HMM Limited, 1995 (76) ELT 497 (SC). Further, the question for recovery of interest also does not arise.
Penalty not imposable on Shri Durgesh Bangar & Shri Prakash Bohra, under Rule 26(1) of the Excise Rules.
B.1 The penalties imposed on Shri Durgesh Bangar (Director) & Shri Prakash Bohra (Chief Executive Officer), under Rule 26 of the Excise Rules, are not sustainable, since the demand is not legally sustainable; further no evidence has been disclosed by the department to prove that the individuals concerned dealt with the goods which are liable for confiscation, with knowledge about their liability to confiscation. No such finding of fact or evidence has been brought on record by the Department. For this reason alone, the penalty on the individuals is not sustainable. Reliance is placed on the decisions of Shri Manohar Singh Rana v. CCE, 28 Indore, 2017 (5) TMI 871- CESTAT New Delhi and Z.U. Alvi v. CCE, Bhopal, 2000 (117) ELT 69.
B.2 Similarly, the penalties imposed under Rule 15A of the Credit Rules are also not sustainable and are liable to be set aside.
29. Learned Authorised Representative for the Revenue reiterates the findings in the impugned order.
30. Having considered the rival contentions, we find that the receipt and installation of the capital goods, on which cenvat credit is objected, is not disputed. As regards the error in the address of the particular unit of the assessee company is concerned, we find that this is not a good reason for rejection of the cenvat claim as the invoice is in the name of the appellant company only, and subsequently they have got the error rectified by the supplier of the capital goods. Further, it is not disputed that the machinery in question although being used for manufacture of cotton yarn and cotton fabrics is also capable for manufacturing PV yarn, as certified by the manufacturers / supplier of the machinery. Further, we find that the fact of export is not disputed of the cotton yarn /fabrics, which were removed from the factory without payment of duty and were exported. The appellant have led evidence also before this Tribunal wherein they have produced copy of shipping bills dated 28.05.2015, 25.05.2015 etc. wherein the goods have been certified to have been exported vide endorsement of the main receipt and the certification of the Inspector of Customs House, Chennai. We further hold that under the scheme of Act and Rules, there is no concept of „pre-dominant user‟ of the capital goods for availment of cenvat 29 credit. Even if the capital goods have been partially used for manufacture of dutiable goods or on payment of duty or have been exported (which amounts to removal of goods on payment of duty), the appellant is entitled to cenvat credit on the capital goods in question. Such principle have been laid down by this Tribunal in its precedent decisions‟ particularly in the case of M/s Lakshmi Balaji Bottling Pvt. Ltd. vs. Commissioner of Customs and Central Excise, Tirupati-2018-TIOL-2916-CESTAT-HYD. During the period in question, appellant have admittedly exported four consignments of cotton yarn (cleared without payment of duty). We further hold that the special procedure for removal of dutiable goods under Rule 19 of Cenvat Credit Rules read with Notification No. 42/2001-CE is not applicable for removal of exempt goods for export. As the said Rule, read with notification are only for the purpose of safeguarding the interest of Revenue. Further, we find that Rule 6(4) of Cenvat Credit Rules as substituted w.e.f. 01.04.2016, provides that no cenvat credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods for a period of two years from the date of commencement of commercial production. In other words, even if the capital goods are exclusively used in the manufacture of exempted goods, still the statute by substituting Rule 6(4) have provided cenvat credit after expiry of two years from the date of commencement of commercial production. We further find that the appellant fulfils the criteria for availing cenvat credit on capital goods under Rule 3 read with Rule 9(1) of Cenvat Credit Rules, 2004. We further hold that under the facts and circumstances, the provision of Rule 6(4) of Cenvat Credit Rules are not attracted, as 30 Rule 6(6)(v) provides that the provision of sub rule (4) shall not be applicable in case the excisable goods removed without payment of duty, are cleared for export under bond in terms of provisions of Central Excise Rules, 2002. This Tribunal in somewhat similar circumstances, in the case of Sangam India Ltd., vs. CC&ST, Udaipur -2018 (1) TMI 1012-CESTAT NEW DELHI has held that one of the circumstances given in Rule 6(6)(v) - clearance for export under bond in terms of the provisions of Central Excise Rules, 2002, it is pertinent to note that Rule 6(6)(v) have made Rule (4) inapplicable when excisable goods are removed without payment of duty for export under bond. As part of the export has taken place under bond „LUT‟ and certain other consignment have been exported without executing „LUT‟, claiming the goods as exempted under Notification No. 30/2004, in any case it is settled principle of law that only the goods are exported from the country and not the taxes. The Central Excise law provides for clearance of goods for export, either under bond in which case the terminal excise duty is not paid at the time of clearance from the factory, but in the terms of the bond the manufacturer is obligated to export the goods and get the bond discharged. The other option to the manufacturer is to pay the said duty and export the goods and get the excise duty so paid rebated. As the export of goods is not doubted, this Tribunal is of the view that the benefit of Rule 6(6)(v) is required to be extended to the appellant. Accordingly, it is held that the appellant manufacturer is entitled to cenvat credit on capital goods, used partially for export even though domestic clearance are exempt.
31
31. So far the claim of the appellant of having cleared some of the cotton yarn on payment of duty to M/s Sai Leela Synthetics Pvt. Limited, we agree with the adjudicating authority that this is a sham transaction.
32. However, in the facts and circumstances, we hold that the appellant is entitled to cenvat credit on the capital goods in question. Accordingly, we allow these appeals with consequential benefits and set aside the impugned order in original. The appellants shall be entitled to consequential benefits, in accordance with law. Misc. Applications also stands disposed off.
(Pronounced on 09.01.2020) (Anil Choudhary) Member (Judicial) (Bijay Kumar) Member (Technical) Pant